ABN AMRO

Dutch disease

An unseemly rush to defend a national champion

CENTRAL bankers in the 13 members of the euro are supposed to think European. So Nout Wellink, governor of the Dutch central bank, should have been grateful rather than irritated when the Children's Investment Fund (TCI), a London-based hedge fund, offered a bit of timely prompting to ABN AMRO, a big Dutch bank, in which it holds a 1% stake. In a letter to the bank, the Londoners proposed five big items for discussion at the next shareholders' meeting on April 26th. It wants the Dutch to cut costs and to consider the sale of divisions, or even the whole bank.

ReutersMuch ado about Nout

In a newspaper interview, Mr Wellink ranted that TCI's demands could threaten financial stability, with repercussions throughout Europe. “Work out what bits the bank should sell, and send the proceeds to us,” was how he characterised the hedge fund's position. A spokesman for Charlie McCreevy, Europe's internal-market commissioner, warned the Dutch authorities not to interfere with legitimate capital-market activity.

Far from selling bits of itself, ABN AMRO still looks prepared to buy. Even as it struggles to digest Antonveneta, an Italian bank it recently purchased, it has been distracted by a crude powerplay at Capitalia, another Italian bank in which it has an 8.6% stake. Capitalia's old-school chairman, Cesare Geronzi, has tried to oust his successful young chief executive, Matteo Arpe. TCI's letter, which warned ABN AMRO not to pursue Capitalia for now, preceded the crucial board meeting at which Mr Arpe survived, despite Mr Geronzi's efforts.

Hedge funds have a reputation for stirring things up. But TCI's letter reflects widely held worries about ABN AMRO. In a January research paper Merrill Lynch, an investment bank, pointed out the dangers for ABN AMRO of attempting to buy a second big Italian bank. It drew a parallel with NatWest's ill-fated attempt at an insurance takeover in 1999. That failure so weakened its stock price and the reputation of its management that NatWest was itself acquired by Royal Bank of Scotland.

Why then did the hedge fund's letter create such a fuss? ABN AMRO, a sprawling bank with assets in over 50 countries, is akin to a national champion. It is also one of the few European banks that has taken a big step in cross-border consolidation. That has been somewhat at the expense of shareholder returns. Buying Antonveneta, for example, drew it into a two-year battle with Italy's then central bank governor, Antonio Fazio, for little reward thus far.

Having suffered at the hands of Mr Fazio, ABN AMRO now finds itself defended by its own lofty protector. But, whereas Mr Fazio's interventions cost him his reputation and eventually his job, Mr Wellink is unlikely to venture so far in the Dutch bank's defence.

Can ABN AMRO defend itself? In 2004 Rijkman Groenink, the chief executive, announced a “mid-market strategy”, relying on the bank's core strengths and regions, and abandoning its ambition to be at the top of the global pile. It has good potential cashflows but has failed to curb costs.

TCI's clarion-call has been applauded by some shareholders. There are rumours that potential buyers, such as Citigroup and some big British and Spanish banks, are eyeing ABN AMRO, in whole or in part. Mr Groenink has already earmarked 2007 as a “year of delivery”. The question is what will he deliver: better returns, a spate of spin-offs, or the entire bank?